August 9, 2012
TO Ecosystem Angst

Here is my response to recent blogs on the status of Toronto’s and more broadly, Canada’s Startup Ecosystem. Specifically, posts by Upverter's Founder Zac Hamouth, and startup community member, commentator, and marketing expert Mark Evans. Zac’s post, “Toronto is Broken" argues we are missing or have significant weakness in key elements for a successful startup ecosystem. Mark on the other hand, argues that Toronto is working with solid foundations with a strong trajectory in his post "No, Toronto’s Startups Ecosystem isn’t broken”. Both articles nail some facts, highlight misconceptions, and feed an important debate.

My job is to foster this Ecosystem, so I feel compelled to add a third view to the exchange. For context, I run South West Ontario from Toronto for Ottawa based Coral CEA; we are a private NFP funded by the Ontario Ministry for Economic Development & Innovation (MEDI). MEDI provides mandate and funding to Ontario Network of Excellence (ONE) that is tasked with supporting innovation & entrepreneurship in Ontario; its key Members include MaRSCommunitech, and NAO. I have been active in the Toronto Startup Community for the last 4 years, as an entrepreneur (1 bust), service provider (refer to bust & Coral), and funder (Coral). Coral CEA is working across the board on ecosystem development, it’s part of our mandate from MEDI, it’s the directive of the Grants we provide, and it’s the product we are developing as a startup (a post onto itself).

I think I might have a novel view on this debate given my rather unique role. I find that two party debates generally polarize pretty quickly into partisan positions, and I think we should avoid that in our community, in the middle lays much firmer ground for progress. 

Let’s start with an attempt at inventorying the perspectives presented in each argument. 

  • The pool of local proven players (millions in shareholder value created) is shallow (Zac); but there is a group world class players here (RIM, Nortel, Workbrain, Radian6, Hootsuite, Rypple, etc.) (Mark). 
  • Big ideas are evident in our market as Mark points out, I see the small ideas that Zac worries about, but small and bad lead to big and beautiful its part of a healthy environment. 
  • The Scale Gap. I agree this is a big challenge, the evidence shows this is a weakness. Canada has not produced a sustaining high tech innovation company at Scale. RIM, Cognos, Nortel have scaled but not sustained. While this gap persists, founders will exit before establishing anchor companies (Dayforce). NexJ, Fixmo, Shopify look like they are taking shots at this.
  • Mentorship is similar to the pool of proven talent, there is a small group of true experts providing tonnes of value to the community, Mike McDerment, Dan Debow, Rick Segal, Mark Ruddock, Howard Gwinn, etc. They are supplemented by a deep pool of support organizations & people who fill important roles, the ONE contains lots of this, law & accounting firms make solid efforts, as do community organizers like David Crow, Phil Telio, & Mark Evans. This can be bigger and better, but that will happen when more companies break through. 
  • The Capital scene has been a struggle for a while, but that has significantly changed this year with a group of new funds launched (OMERS, RHO, Celtic, etc.) with more on the way (Round13), and the government more than pulling its weight ($400m VC backing, SRED, Grants like Venture Start, Coral, etc.). I also see the Angel networks getting better orientated to their value potential to the startup market. Could this be more aggressive, yes, will good deals get funded, no question, yes.

So, given the presentation of ideas and facts from both sides I see where both are coming from, we have strengths and we have areas that need work for us to get to the next level. The two main challenges Zac points to, talent that knows how to scale to compete globally, and build a stronger Founder peer group I think are spot on and will lead to his third, bigger ideas. These two things will need to leverage the strengths Mark points to and add multiples of value to those existing assets that make us all bullish on our ecosystem.

As capital is deployed, teams scale, and exit over the next 3 – 5 years the opportunity to create a sustainable tech startup ecosystem will present its self. We will need to see a minimum of 20-30 companies raise $10m+ &/or generate $100m+ valuations in this decade (2010-20) to feed the knowledge, talent and capital pool needed to get a healthy ecosystem. All hands on deck ready to accept and face the brutal fact that there are icebergs everywhere and this ship can sink. 

January 11, 2012
The Startup Talent Battle

In Response to @DavidCrow ‘s post ‘It’s People, people”: http://startupnorth.ca/2012/01/10/its-people-people/trackback/

We are seeing the same challenge in the community, its a great signal of health. Most every shop Coral CEA is engaged with is on the hunt for great talent, especially on the tech side. I see the ability to attract talent as the second most important challenge to a startup, the first being attracting customers (paying ones;). Much conversation is dedicated to the need and challenges of attracting funding, more thought should be given to revenue and talent. 

Advocates of the Canadian startup / tech scene often trumpet our abundance of talent (University educated people), but I think the talent available to startups is much shallower than we might want to believe. The vast majority of the need is for engineers (developers, etc), and most engineers I know are big fans of structure and certainty, not attributes associated with startups. The overall market may not lack for talent, but the combination of talent and the personality type to enter a startup inside the first 20 employees is somewhat rare. 

Most recent grads are still attracted to the bigs (telcos, banks, F500s), though they are showing an attraction to startups in increasing numbers. Seasoned professionals, the ones with proven talent and more important experience; which will be critical in a scaling startup, are even less attracted to the startup market. Regular paychecks and benefits are really important to people with families and mortgages, no matter how great your startup that engineer with 5-10 years working at IBM needs to pay the bills and get little Johnny braces. T We need to figure out two things in parallel: better leveraging the talent in the market because there is not enough to go around and get the whole community to critical mass; and work to make working at startups less risky and more attractive to high end talent.   

We are working on a couple of initiatives to address this significant risk in the market. We see a number of shops that have expertise on one side of the equation but not the other. Teams of less the 10 typically have a depth of domain knowledge in a market with the ability to execute business development OR a depth of technical talent and proven technology; the combination of both is rare. 

Coral CEA is working to create partnership relationships between domain experts and tech experts so each can better leverage their core competence with out falling prey to the ‘recruiting gap’. Two favorite areas are financial services and health care, understanding the needs of the markets and having the relationships to successfully sell into them takes years, these markets are ripe for disruptive tech that change the ‘customer’ experience, the challenge is matching the tech to the right value proposition and right buyer. We are working to develop structures that make these partnership less risky from a time, execution, and capital perspective. 

The second part is working to create partnerships with experts on HR. Hiring, retaining, and managing talent is hard work that takes expertise and a core area of risk for a company. A bad hire early in a company can be a disaster (time, money, effort are in short supply), in later stages having bad structure and processes to manage and retain your team can be equally destructive. The challenge Coral CEA is trying to address for the community is getting the community organinzed in a way that makes delivery of the expertise economical for all parties. Having your HR house in order is going to make your startup much less risky and therefore more attractive to the seasoned pro you are trying to lure away from the bigs. 

Sorry for the long post, its been on my mind;). BTW we also have opps for Mobile, PHP, and Ruby devs. 
Happy to chat more

December 1, 2011

Coral CEA featured on XConnectTO talking about the Ontario Startup scene & Open Innovation 

(Source: xconnectto.com)

July 19, 2011
Thoughts from the International Startup Festival

I spent July 13-15 in Montreal participating in the first International Startup Festival, and find myself dreaming big. I love that I have chosen Startups as my industry. The energy of entrepreneurs building businesses is infectious, something only a tiny few of established businesses have. That said, the post that I had started before going to Montreal aligns with the narrative of the early presenters at StartupFest, Dave MacClure and Chris Shipley. Both took different routes to emphasize being an entrepreneur and specifically a tech startup entrepreneur is intensely hard and not for most people (Presentations here & here).

What I love most about startups

The challenge, the knowledge in the back of your head that success is so unlikely, and the fact that you will be fully tested by the process. The experience validated my working assumption that startup success is about a great many things, but it is firstly and most principally about heart, and the power of perseverance.  As Chris Shipley postulated, the best entrepreneurs over time are typically proven to be a lot more talented/hardworking versus lucky. This fed my theory that luck is an outcome of being good and persevering. A successful entrepreneur needs to be successful at creating the conditions for their luck to happen. So many startups are dependent on the confluence of market timing, market conditions, and having the right people working together to recognize the opportunity (even if it isn’t obvious to them) that success cannot simply be chalked up to luck. I am not going to take your time with case studies, there are plenty out there.  

Let me plant this theory…

You need to be good to be lucky; to stack the odds of luck happening in your favor you need to be persistently good. I will leave my thoughts on the core essence of entrepreneurship being perseverance for my next post. I want to turn back to Startup Fest. 

The Canadian Ecosystem

Canada’s innovation centers, Montreal, Toronto, Waterloo, and Vancouver are doing the right things to build community and the ecosystem required to foster interesting-successful ventures.   None of these places will ever be the Valley. They are, however, doing a good job of learning from the DNA of the Valley and transplanting the key attributes into our environments in Canada. The key next step for them is to begin working on a culture shift within the Canadian ecosystem.
The Startup industry is fundamentally about innovation; success in innovation is about experimentation and being rigorous about the process of failure. FAILURE is the magic sauce of innovation. The core difference between the Valley and the rest of the business world is its cultural attitude towards failure, being good at failing is a desirable attribute for an entrepreneur in the Valley. See this interview with Steve Blank for more.

The Valley ecosystem trains the ability to fail in a way that drives innovation. So long as you ‘fail well’ the ecosystem has the ability to support you in that failure and keep you moving forward in the industry. Failure in other business ecosystems is a scarlet letter, few entrepreneurs outside the Valley have the chance to pick themselves back up after a being proven wrong by the market. It usually becomes time to put your tie back on and get a ‘real job’. So much innovation is lost in this leakage, the odds dictate that a lot of at-bats are required to hit a home run and experienced hitters have much better averages than rookies, I will link up a presentation from Startup Fest made by Jeff Clavier on this.

We need to figure out how to develop more veteran hitters. The take-away, more like validation, I took from the festival is that a strong community, an ecosystem, is critical to creating a sustainable startup/innovation industry, we need to give talented people room to fail.

An ecosystem is an evolutionary process.

The Valley was not a big bang event, the emergence of New York in the Startup industry did not happen overnight. The emergence of anchor companies like 37Signals and Groupon in Chicago is not luck. Austin is not a hub in the startup industry because of SXSWi. These communities were built and fostered over long periods of time. PEOPLE stepped up and led the creation of these communities, which then evolved into ecosystems.

Charlie O’Donnell of First Round Capital closed the Festival with this talk (link when available) about the long term view and personal engagement required to build an ecosystem that will sustain your career path in startups over time. He worked all three of the core components of a healthy startup ecosystem: he founded and worked for solid startup teams that produced economic value (Path 101), he put personal effort into supporting the community launching nextNY, and he has provided capital (Union Square & First Round) to amplify break through teams and provide the economic fuel that sustains the cycle.

This ties to the evolutionary nature of the startup ecosystems. Too often I hear Canadians bemoan the lack of risk capital in our startup industry. The ‘Catch22’ paradox is what it is to be an entrepreneur, solving this problem is a big component of what it is to be successful.

I see a six phase process to developing a robust startup ecosystem:

  1. Community, people & teams rally around one another to support the creation of new companies
  2. Solid Companies emerge
  3. Companies generate exits
  4. Anchor companies emerge
  5. Risk Capital becomes local & more available
  6. People & Capital begin to cycle through the phases consistently.

A couple basic rules I have discovered to frame this, Investors invest in what they know, and Risk Capital flows to Innovation & and proven operators. These two rules beget a conclusion that I believe important to the successful development of an ecosystem; it is up to entrepreneurs to own all six phases of the process.  

We need to…

  • Build our community, not the government (etc.).
  • Create solid teams by any means necessary (overcome the catch22!).
  • Produce shareholder value.
  • Build disruptive companies.
  • Bring back exited entrepreneurs & successful VC’s to re-invest returns back into the process.
  • Find people to choose Startups as a career and continually add value in the ecosystem over 10 – 20 years.

Final Thoughts

I will  address Toronto, where I live and spend of my time. We are generally in phase 2 of this process, we have some exceptions like Workbrain in phase 3, but for the most part Toronto is still searching for startups to exit in 9 figures or build anchor companies like RIM in Waterloo (current issues set aside). Workbrain has driven the creation of several phase 2 companies like Dayforce, I Love Rewards and Rypple that are re-investing money, knowledge, and most importantly people from that successful exit back into the startup ecosystem. Companies like Freshbooks seem on a trajectory to build a Toronto Anchor company that will provide the critical mass of highly skilled entrepreneurs to fuel the growth of earlier phase startups.  Montreal is providing an excellent example on the capital side with Year One Labs, Real Ventures and iNova who are driving capital into their local ecosystem.  In short we still have a long way to go, and key work still is needed to solidify the foundation of phase 1 our community.

I think we need to put community effort into slowly shifting the Toronto attitude towards failure, to one that is productive and encourages innovation. I think the strength and growth of the Lean Startup Movement through groups like LeanCoffeeTO is a key starting point for this shift. Lean is a great way to learn how to ‘fail well’ and the meetup group provides a supportive environment to share experience both good and bad. So many businesses fail at failing, let’s get better at it.

I invite you to share your thoughts.

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